What if Interest Rates Stay Low for the Next 70 Years?

In some nations of the west, they have now reached zero percent, a situation that would have been hailed as impossible just a few years ago.

What if interest rates were to stay low for the rest of the century?

This is definitely a possibility. And this is not something I just thought up today.

My subscribers have been alerted by me to this probability for more than a decade, perhaps longer, as you will see, below.

Interest rates have been trending down for years. The best way to show this is via the chart of bond prices. Now remember, bond prices are the inverse of yields, so in this chart, below, a rising price means interest rates going lower. The chart is of the US long bond, 1978 to current:

Rates have been trending lower since 1981. If we were to show this over the course of several hundred years, we see that actually interest rates have in the past had a tendency to move in rough 30 year waves; that means roughly 30 years of rates slowly trending higher from all time lows, then 30 years of the reverse.

Historically, interest rates have moved in 30 year cycles, the same as the Kondratieff commodity price wave, but lagging slightly. This chart of bond price history shows us that the very high interest rates of the early 1980s (that many of us remember) were actually a historical anomaly and exceedingly unlikely to be repeated. And quite often in markets, when things do go to extreme highs, the next thing that follows is extreme lows.

I think low interest rates could persist for years, if not decades. Here’s why…

It is based on a very illuminating study done some years back by David Hackett-Fisher in a large and heavy book called The Great Wave. Probably very few took the time to read this book. But he uncovered some rather interesting history…

Hackett-Fisher found that over the last thousand years or so in the West, the price of consumables, one measure of inflation, has moved in four great waves. He drew it out, this way:

You can see that each price revolution — each great wave of inflation — has then been followed by almost a hundred years of price stability; low inflation and low (comparably) interest rates. You can see in the chart too, the huge price increase of the 1970’s was also an anomaly, historically speaking.

If Hackett-Fisher is right, the 21st century may witness low prices and low interest rates for many years to come.

Hackett-Fisher wrote the book in the early 1990s, when the massive technology revolution was not quite as obvious as it is today. (And it must have been a damn sight harder to research without much of the internet as we know it today.)

The scenario of a century of low inflation (and low interest rates), driven by the relentless technology developments now under way, is now certainly more plausible than ever. And if we add to this scenario the likelihood too of exceptionally low natural gas prices, and the competition this may bring to all other forms of energy, I think the outcome is even more likely.

So for those investors waiting for interest rates to spike up again sometime soon, and so cause chaos once again in markets and another broad sell-off, you might be waiting a long time…

Regards,
Phil Anderson
for Markets and Money

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Interest rates WILL stay low because “growth” will come from an exponetial desire for clean air, potable water and a safe place for children to grow, play and learn. As the biomass moves through primary associations; chlorophyll based organisms, diverse insect colonies as well as a plethora of benign bacteria. Advanced economies will surley exhume such potential and convert such potenial “assets” into tradable luchré. The huge investments required and the long time line for asset maturity will make “bricks and mortar” seem like overnight sensations. Furthermore convential wealth generating systems will go “toxic” with zero growth and a yet… Read more »

Re: “You can see in the chart too, the huge price increase of the 1970’s was also an anomaly, historically speaking.”

= US went off the gold standard…

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3 years 3 months ago

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